UK life sciences companies raised more this impressive sum, driven by the UK’s advanced research and development capabilities. 

The total amount of VC investment in the sector was more than that in Germany, France and Canada combined and represented 16% of all UK VC investment between 2020-22, according to the British Business Bank’s annual Small Business Equity Tracker.

The life sciences sector has demonstrated significant growth over the last 10 years, and particularly over the last five years. The number of deals for life sciences companies rose from 270 in 2017 to 505 in 2021, while total investment value saw a fivefold increase from £1.0bn to £5.2bn over the same period.

Louis Taylor, CEO, British Business Bank, said: “The UK has a proven track record in scaling the life sciences sector through venture capital investment, making it a true bright spot in the UK’s venture capital ecosystem. Fuelled by our incredible academic institutions and commitment to fostering innovation, there has been a strong pipeline of equity investment into this sector.

However, the life sciences sector hasn’t been immune to the recent downturn in venture capital investment that the UK has experienced, and it is vital that this field has the later stage and specialist, patient capital needed for it to scale up and continue its progress.”

Digital health in fastest growth

The Small Business Equity Tracker takes a deep dive into four life sciences sub-sectors – therapeutics, diagnostics, medical devices and digital health. Therapeutics has consistently been the largest sub-sector in the UK, receiving £1.9bn of VC investment in 2022 and a total of £10.1bn across the 2017-22 period.

The second largest sub-sector is digital health, raising £1.2bn in 2022 and £6.1bn over the 2017-22 period. The remaining medical devices and diagnostics sub-sectors received £3.1bn and £1.7bn, respectively, between 2017 and 2022.

While all four specialisms demonstrated an increase in venture capital investment of more than 100% in 2020-22 versus 2017-19, digital health experienced the fastest growth at 157%. Some of the largest deals in this sub-sector included a £260m investment in London-based Cera and a £174m investment in Warwick-based Quanta.

Therapeutics businesses raised 125% more venture capital finance in 2020-22 versus 2017-19. Some of the largest deals included a £195m investment in Oxford Nanopore Technologies, a £183m investment in Cambridge-based Centessa Pharmaceuticals, and a £161m investment in Oxford-based Exscientia.

Vulnerability to market downturn

Much like the rest of the venture capital ecosystem in the UK, life sciences has experienced a decrease in the total value of investment and the number of deals in 2022, following a record year in 2021.

In 2022 the value of VC investment declined by 43% to £3.0bn. This was driven mainly by the second half of the year, during which £1.3bn was raised (a 42% decrease year-on-year).

Seed stage deals experienced the largest percentage decline in total investment by deal type, with a 51% decrease year-on-year. However, despite the reduction in total equity finance in 2022, life sciences remains one of the largest VC-backed technology areas in the UK.

British Business Bank fosters innovation

The UK has lacked the presence of large specialist life sciences investors, meaning that many UK start-ups look overseas, particularly to the US, for capital at later stages in their development.

In response the Bank has established the Life Sciences Investment Programme, a £200m initiative managed by British Patient Capital, designed to address the growth equity finance gap faced by high-potential UK life sciences companies. In addition, it has established the Future Fund: Breakthrough programme, a £375m UK-wide programme which encourages private investors to co-invest in high-growth, innovative firms.